Middle Class: A step towards economic growth

KAROBAR CORRESPONDENT

Saturday, Apr 28, 2018

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The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half among the world’s 7.6 billion population. The report also shows that the wealth of 3.6 billion poorest people fell by just over a trillion dollars. So, if we make a small calculation, we can find that the majority of the middle class people more than the rich and poor. Considering this report we can take an example: suppose 2 out of 10 people are rich and the rest 8 are middle class. If the rich spend $10 each per day and the middle class $5 each per day, what we can see is that the consumption of the total rich will be 2*$10= $20, and that of middle 8*$5= $40. Though the spending of the individual rich is more than the middle class but if we make the total spending, we can see middle class consumption wider than the rich.The rich people are rich in every aspect of their life and to uplift the poor is just like feeding and caring a newly born baby till it becomes an adult, which would take time. So, here my main concern is the commoners. The rich people with a wide business hold a good position in the country’s economy. But the middle people being large in their majority, if developed can hold a great stand in the economic growth. To challenge trickle-down effectively, progressives should counter with their own story about economic growth. In this story, it is not the rich that lead to growth and prosperity. Instead, it is a thriving and vibrant middle class that shows us the path.The rich industrialists and billionaires as well as the poor people are always on limelight for their actions and non-actions. All the credit for the country’s economy goes to the rich as they seem to do all task whether it is import or export, employment creation, rise in country’s GDP and GNP, foreign remittance and so on. And poor people are highlighted for not being part in the country’s economy. Where are the Middle Class? The importance of middle class people has always been hidden from the books of economics and by other economic professors. Everywhere the rich and poor people are given supreme priority. But the thing is that, without the middle class people, a country can’t take its economic status to an advanced level. We see many benefits being provided by the government to the rich either it is setting-up a new industries, easy way for import and export, low taxation policy and so on. The same way the poor are being helped in the form of donation, charity, free education, health facility, food, government subsidies. But the current thinking and rhetoric about the middle class is still backward. The middle class people are not so much financial to new business or provided with any extra benefits. The modern progressives have attempted to articulate a model of economic growth but they have underplayed the centrality of the middle class people. John Maynard Keynes, in his 1936 book, of The General Theory Employment, Interest and Money described one of the core connections between the middle class and economic growth “that states middle class consumption is needed to spur investment. But the modern economic profession has highly missed the boat in the middle class and highlighted other connections for economic growth. For economic growth saving and investment are two important components.” It’s not that the middle class people do not want to save and invest but the limited salary fulfilling only their basic needs make them unable to think for further investment. The problem with trickle-down are legion but even after producing, only relatively weak growth is seen during good times and then causing the Great Recession. The thing is that resources are almost in the hands of the rich industrialists. They are the one supplying goods. Since there number is few they do as they like whether it is rise in prices of goods causing inflation. History shows that the very great recession has occurred due to capitalism. We can take the example of the great recession on 2008 occurred in Russia. Resources where in the hands of few rich people and when they got fail the whole country suffered. And, thus the economy got collapse. Youth are the boon to the nation. For a positive economic growth, the country needs actively working youth. Since the majority of middle class is more than that of rich and poor, active youth can be found in the circle of middle class. But what is happening is that most of the educated youth are with no job. Middle class people spend more but their spending is quite unproductive. They try to maintain standard as the rich, spending haphazardly on unproductive items such as purchase of gold, land, building which don’t make any grow in the country’s economy.My concern here is more to the development of middle class people because it is an easy way to economic growth. Generally, a middle class family has some economic security, a good job with health and insurance, a retirement plan, and some savings in the bank to tide them over in an emergency; send a child to college, or float a loan to a member that wants to startup a new business. We don’t need to start from the very beginning to develop the middle class. Just we need to pour some water on a growing plant. Middle class matter for consumption, growth and development. In order to spur sustainable economic growth, the middle class need to be able to consume. And to do that, they need to see their income rise. Above we discussed about the economic recession due to capitalism. If the resources are spread for utilization to common people there will be no chance of being recession. Situation is that resources are in the hands of few rich people, one people get collapse the whole country suffers. But if these resources are lend to the hands of many, the destruction of one to two will not affect anyone as the majority of middle class is more. None of the government of any country has think about the development of middle class. Facilities are being provided to both rich and poor but not to the middle class. Middle class people are spread in large numbers and everywhere. So, if the middle class start producing, no capitalist can rule the market as there would be many to supply the same product. And those who are supplying will have to produce quality product and at a reasonable price. The leaders in academia, government, policy-making circles need to take up the charge. Government should form special policy providing facilities for the middle class to grow. The political standard-bearers have to synthesize the message of middle class- led growth and popularize it. The government should take the steps for creating new business and financing to the middle class. There need be more objective criteria to set the cut-off point between the middle class and the rich. The large donation and free facility to the poor discourages the middle class to work as they can have money doing nothing and just being poor. This trend should be reduced. Everyone should be paid as per their work. Those who are empty, work should be given. By this what will happen is that both the poor and middle class have to work to earn. Pay for performance should be regulated.Talking to the context of my country Nepal, it is the 17th poorest country in the world. Approximately 25 percent of Nepalese live below the poverty line. And now comes the rich, only one man from Nepal has taken place on the Forbes report of billionaires of the world. Thus, the majority of middle class is more here. Nepal’s economy totally depends on the Indian economy. The unofficial India Blockade over Nepal which began on 23 September, 2015 came with loads of trouble to the people living here. As a landlocked nation, Nepal imports all of its petroleum supplies from India. Roughly 300 fuel trucks enter from India on a normal day, but this has dwindled to a sporadic passage of 5-10 fuel trucks daily since the start of the crisis. The blockade has choked imports of not only petroleum, but also medicines and earthquake relief material. The few industrialists who were supplying the other goods started increasing their price. The common people had no way except to pay high and purchase by which inflation ruled over the country following recession. If these supply where in the hands of many, the situation will never had happened. To challenge the trickle-down economics, progressives need to develop a compelling story that explains how to generate economic growth. Otherwise, we will remain on the defensive about whether our policies can create jobs and opportunity, and we will continue debating economic policy on trickle-down terms which is a recipe for failure. A strong middle class is a key factor in encouraging other national and societal conditions that lead to growth. It is a pre-requisite for robust entrepreneurship and innovation, a source of trust that greases social interactions that makes business transactions more efficient, a basic of civic engagement that produces better governance and a promoter of education and other long-term investment. Thus, to grow the economy, Middle Class need to be focused. -- Divya Lalwani(The writer is Pursuing MBA at Management Campus (PUSOM), Biratnagar